Thursday, February 7, 2013

FBAR: Reporting Foreign Accounts To IRS - Part 4

Q. What is a financial account?

A. A “financial account” includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit or any other account maintained with a financial institution or other person engaged in the business of a financial institution. Financial account also generally includes any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

Q. What is meant by the term “commingled funds?”

A. The reference to “commingled fund” appears in the definition of the term “financial account” in the FBAR instructions. The instructions state that the term “financial account” generally encompasses accounts in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund.

Persons with a financial interest in, or signature authority over, a foreign commingled fund that is a mutual fund are required to file an FBAR unless another filing exception, as provided in the FBAR instructions or other relevant guidance, applies. The IRS will not interpret the term “commingled fund” as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, the IRS will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund with respect to that account for calendar year 2009 and earlier calendar years, including hedge funds and private equity funds.Notice 2010-23.

Q. Is an FBAR required for accounts maintained with financial institutions located in a foreign country if the accounts hold noncash assets, such as gold?

A. Yes. An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.

Q. What does “maximum value of account” mean (for Box 15 on the FBAR)?

A. The maximum value of account is the largest amount (not the average amount) of currency and nonmonetary assets that appear on any quarterly or more frequent account statements issued for the applicable year. If periodic account statements are not issued, the maximum account value is the largest amount of currency or nonmonetary assets in the account at any time during the year. Convert foreign currency by using the official exchange rate at the end of the year.

Though the FBAR instructions direct filers to use the official exchange rate, the Internal Revenue Service has no official exchange rate and generally accepts any posted exchange rate that is used consistently. For exchange rates, check theU.S. Treasury Web siteor other commercial sites.

Q. A person owns foreign financial accounts X, Y and Z with maximum account balances of $100, $12,000 and $3,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?

A. The FBAR instructions require the filing of the FBAR form “ … if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year … ” In this scenario, the person has an FBAR filing obligation because the aggregate value of foreign financial accounts X, Y and Z is $15,100. The person must report foreign financial accounts X, Y and Z on the FBAR even though accounts X and Z have maximum account values below $10,000.

Q. A person owns foreign financial accounts A, B and C with account balances of $3,000, $1,000 and $8,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?

A. Even though no single account is over $10,000, because the aggregate value of accounts A, B and C is over $10,000, the person has to file an FBAR and must report foreign financial accounts A, B and C on the FBAR.

A. Yes, an FBAR must be filed whether or not the foreign account generates any income.

Q. Does the term “other authority over a financial account” mean that a person, who has the power to direct how an account is invested but who cannot make disbursements to the accounts, has to file an FBAR?

A. No, an FBAR is not required because the person has no power of disposition of money or other property in the account.

Q. Must a U.S. person file an FBAR to report a eurodollar account in the Cayman Islands?

A. Yes, the Cayman Islands account is a foreign account.

Q. A New York corporation owns a foreign company that has foreign accounts. The corporation will file an FBAR for the foreign company’s accounts. Do the primary owners of the U.S. company also have to file?

A. Yes, if any owner directly or indirectly owns more than 50 percent of the total value of the shares of stock, that owner will have to file an FBAR.

Q. A company has more than 25 foreign accounts. What should they enter in Part ll of the FBAR?

A. If the filer holds a financial interest in more than 25 accounts, check the yes box in item 14 and indicate the number of accounts in the space provided. Do not complete any further items in Part II or Part III of the report. Sign the form in item 44/45 and enter the date signed in item 46. Any person who lists more than 25 accounts in item 14 must provide all the information called for in Part II and Part III when requested by the Department of the Treasury.

Q. What are the exceptions to the FBAR filing requirement?

A. Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. government installations abroad, are not considered as accounts in a foreign country. For this reason, these accounts do not have to be reported on an FBAR.

An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation need not report that he has signature or other authority over a foreign bank, securities or other financial account maintained by the bank, if the officer or employee has NO personal financial interest in the account.

An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, need not file a report concerning signature authority over a foreign financial account of the corporation, if he has NO personal financial interest in the account and he has been advised, in writing, by the chief financial officer of the corporation that the corporation has filed a current report, which includes that account.

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